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Economic Outlook

UK Construction Intelligence Report

2018 saw the global economy grow by 3.6%, and 2019 will see only a small drop in that rate to 3.3%. This level of growth is expected to continue year on year throughout our forecast period up to 2022. The UK and the Euro area is expected to perform just under half that rate over the same period, but we don’t yet understand the impact of Brexit as we approach 31st October.

Business confidence has fallen across the G7 to its lowest level in five years, and sentiment among manufacturers is particularly weak, according to Mark Carney, Governor of the Bank of England. He added that, “Households have also become gloomier about the general economic outlook, though they remain relatively upbeat about their own financial situation, likely reflecting robust labour markets”.

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Brexit

There are several risks to global and UK economies, such as the US China trade disputes, however the biggest immediate issue for the UK continues to be Brexit.

Since our previous issue in Q1 2019 little has changed in the Brexit scenario other than the extension to 31st October. The Brexit conundrum remains as there is no majority for any Brexit option in the UK parliament. Boris Johnson has exactly the same issues to deal with. The new Cabinet appears focused on leaving the EU on 31st October at any cost, driven by Boris Johnson.

With the Withdrawal Agreement deal already rejected by the UK parliament Boris Johnson will look to reopen the negotiations. The EU say they are not willing to do this, but it must be attempted as the default position on 31st October is to leave the EU without a deal. If the EU does agree to renegotiate, any new deal must also be voted through parliament. If the EU will not negotiate there are a range of other potential outcomes;

Gross Economic Growth

Global Growth Forecast

The economy has slowed down since 2018, however this has not been limited to the UK. The British economy will continue to stutter, and what happens after 31st October is uncertain. After this date there will be uncertainty on trade deals, UK-EU relations and how the markets view the potential volatile economic situation that will follow.

Gross Economic Growth

Source – IMF

Employment

Despite weak growth the number in employment will remain at record or near record levels. The level of unemployment will increase slightly.

Employment

Source – Office of Budget Responsibility March 2019

Households

Salary increases have increased more than predicted, this is countered by a lack of confidence in both business and public circles.

Households

Source – Office of Budget Responsibility March 2019

Investment

Net trade and private investment were weaker in the second half of 2018 weighed down by the global slowdown and Brexit uncertainty. Government spending was boosted by better than expected tax returns, and is anticipated to raise to offset the slowing market.

Investment

Source – Office of Budget Responsibility March 2019

Trade

Imports will grow by 3% this year and by 2.1% in 2020. This is in contrast to exports that will grow by only 1.4% and 1.7% in those years, therefore increasing the trade deficit further. However, the outcome of Brexit talks, tariffs and exchange rate fluctuations will all have an impact so predictions on trade at this stage are difficult.

Trade

Inflation

The fall in oil prices from a peak of nearly 75$ a barrel to a low of 45$ in late 2018 lowered the CPI nevertheless during 2019 prices have recovered to almost 60$.

House prices will rebound and continue to grow, albeit at a lower rate as people look beyond Brexit and demand still outstrips supply.

Inflation

Source – CPI Office of Budget Responsibility March 2019
House Prices – CBRE

Exchange Rates

Currency markets are affected by uncertainty and sterling is expected to fall against the dollar and euro as investors seek safer currencies.

CBR forecasts were based on a March 2019 exit from the EU with the agreed transition period.

Exchange Rates

Source – Economy Forecast Agency